New formula sought for aid to states

There is a need to evolve a fresh formula for the allocation of Plan funds to the states to meet the requirements of backward areas in the country, according to BL Yugandhar, member, Planning Commission.

Normally, central assistance is allocated to the states on the basis of the Gadgil-Mukherjee formula. According to this, while disbursing funds to the states, the Centre gives 60 per cent weightage to population, 25 per cent to backwardness "" of which 20 per cent is reserved for states where the per capita income is below the national average and 5 per cent is divided on the basis of deviation from the average. Of the balance, 7.5 per cent each is reserved for performances like tax collection and special problems of states.

Though it would be tough to change the Gadgil-Mukherjee formula, a new formula, applicable to the allocations made in addition to normal central assistance and to the proposed Backward States Grant Fund (BSGF) could be considered, Yugandhar told Business Standard.

Finance Minister P Chidambaram had announced the setting up of the BSGF in the Budget for 2004-05. The fund, with a corpus of Rs 25,000 crore for a five-year period, is to be used to develop social and physical infrastructure programmes in the poorest and most backward districts in the country within a given time frame. The details for the utilisation of the fund are yet to be worked out.

The 20 per cent weightage given to states having a per capita income that is lower than the national average in the Gadgil-Mukherjee formula accounts for about Rs 5,000 crore. So, if the allocation to the BSGF is in addition to the normal disbursements to the states, the government will be sharply hiking the weight it gives to backward states.

The amendment to the Gadgil-Mukherjee formula has been under discussion for quite some time now, with advanced states seeking higher weightage for performance, while poorer states are in favour of more weightage being given to backwardness.

A new formula would be preferable to individual states seeking special financial packages from the Centre, Yugandhar said.